Monthly Income Property Newsletter – April 2007
Spring is in the air. This next quarter is traditionally one of the busiest times for the real estate business and the income property business specifically. As the weather gets warmer, more and more folks turn their attention to potentially moving or getting renovations done for a future sale. People always like to move in the summer so that they are somewhat settled by the fall.
There have been some crazy sales out there over the past month. One house in Riverdale asking $899K traded for over $1.1M. There are many more instances of houses trading for a lot over asking price, suggesting that multiple offers on well presented properties are still the norm. The established neighbourhoods like the Annex, Kingsway, Leaside, the Beach, etc. are still reaching record high numbers on single-family homes. So if anyone is thinking that the market is starting to slow down in favour of buyers over sellers, I respectfully think you’re mistaken. In many major U.S. cities, yes. In Toronto, no.
On the investment side it’s been a little trickier. When properties are only managing only a 4 or 5 cap rate, I advise my investment clients to keep a low profile. Naturally potential capital appreciation is always a lure but it has been difficult to make spreads on properties that are going in multiple offers. It’s the smart folks out there that are moving into their income properties that are fuelling the current market. As always if you are going to move into a property and you don’t absolutely need all the available space, why not let out a portion of it. Take a look at the properties on the sidebar to get a sense of the duplex and multiplex market in Toronto. If you would like more detailed information on the income property market in specific neighbourhoods, please send me an e-mail and I’ll send you all the relevant sales for you to get a better idea.
The baby boom is definitely also affecting income property sales in Toronto as I have seen more and more older couples downsize from bigger homes north of Steeles and come into the city to look for a nice income property to live in. It makes a lot of sense if you travel a lot or may be away for extended periods to have a good tenant on the scene to keep an eye on your home. Naturally, the rent cheque on the first of the month doesn’t hurt either.
A few months ago I talked about some new initiatives tabled by the city, specifically the notion of licensing landlords. Well there at it again! Just recently Toronto mayor Miller proposed a municipal land transfer tax for all new real estate transactions in the future. Remember that we already have a provincial land transfer tax and not all provinces in Canada even have that. So rather than raising property taxes, the idea is that everyone who buys property will have to pay the land transfer tax twice. This is a double whammy. Experts suggest that this new tax will result in a 45% increase in the existing land transfer taxes, which must be paid in full upon completion of the transaction. I hope that they understand that they are putting an unfair burden on people who buy real estate. Essentially, those buyers of new homes, condos, income properties, etc. are subsidizing those folks who rent or stay in their homes forever. The extra money that will be generated will be spent on services that will be enjoyed by all citizens so I can’t understand why the burden won’t be shared equally and why people who purchase real estate would have to bear the brunt of this. I have personally bought quite a few properties over the past years so I certainly don’t relish the idea of having to pay two land transfer taxes going forward. To my knowledge Toronto will be the only city in Canada that has this double taxation in a market where prices are already higher than anywhere else in the country.
The other issue that is really starting to heat up again is the allowing of consumers direct access to the MLS. Some lawmakers in the U.S. are declaring it anti-competitive to only allow licensed realtors onto the system. This past week the RCMP started looking into the operations of the Canadian Real Estate Association trying to uncover unfair practices along the same lines. If a homeowner feels that they can do an adequate job marketing and showing their property, why should they have to pay upwards of 2.5% of the home’s value to a listing agent? It’s a very interesting argument. Many realtors fell that we have to fight tooth and nail to protect our trademarks which ultimately protect our interests. Regardless of how you fell about this issue, I can promise you one thing: this controversy isn’t going to get resolved for some time. We are at the beginning of what will turn into a long, long legal battle. Once lawyer’s for both sides are able to fully digest the ramifications of opening up the MLS, it will takes years, if not decades before any of this gets sorted out. This is the 21st century and technology has altered the fundamental business mechanics of many industries. Remember that there are a lot of agents out there (including myself) who earn their livelihood trading properties. I expect many real estate boards will work vociferously to protect the livelihoods of their members and will keep this issue tied up in the courts for a long time before any solutions or widespread changes occur.
As always when there are many sides to an issue like the two above, many of you may have different thoughts which I’d love to hear. So please drop me a line at paul@plex.ca if you have anything to add. Happy Easter everyone and enjoy your long weekend!
